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MC Question 26

Mighty IT Co provides hardware, software and IT services to small business customers.

Mighty IT Co has developed an accounting software package.

The company offers a supply and installation service for $1,000 and a separate two-year technical support service for $500.

Alternatively, it also offers a combined goods and services contract which includes both of these elements for $1,200.

Payment for the combined contract is due one month after the date of installation.

In December 20X5, Mighty IT Co revalued its corporate headquarters.

Prior to the revaluation, the carrying amount of the building was $2m and it was revalued to $2·5m.

Mighty IT Co also revalued a sales office on the same date.

The office had been purchased for $500,000 earlier in the year, but subsequent discovery of defects reduced its value to $400,000.

No depreciation had been charged on the sales office and any impairment loss is allowable for tax purposes.

Mighty It Co’s income tax rate is 30%.

In accordance with IFRS 15 Revenue from Contracts with Customers, when should Mighty IT Co recognise
revenue from the combined goods and services contract?

A

Supply and install: on installation
Technical support: over two years

B

Supply and install: when payment is made
Technical support: over two years

C

Supply and install: on installation
Technical support: on installation

D

Supply and install: when payment is made
Technical support: when payment is made